dimanche 30 octobre 2016

About the big correction of McKesson and Novo Nordisk... and many other healthcare stocks

Healthcare stocks are going through a tough time. It seems that a lot can be explained by the incoming american election. A lot of people seem to be scared of Hillary Clinton because of her views regarding rising costs in the pharma industry. Well, more people may be scared about Donald Trump about his views on everything.

Finally, everybody is scared by at least one of them.

A couple of weeks ago, Angelo Dallas, a regular commentator wrote that McKesson looked like a great pick to him.

I agree that this stock would be at least an OK choice. The drug distributor works in an oligopoly and looks very solid.

But, in case you didn't know: life is a bitch. Life is constantly laughing at you. More so when you express your opinion in public. In these cases, life's favorite passtime is to kick your ass. Like with a huge correction.

The same happened at the same time for Novo Nordisk, one of my favorite stocks.

Both stocks have been down 15-20% on a single day, on the report of slashed outlook. I don't understand why the reaction was so brutal because both are great companies. They're not going bankrupt. They just won't grow as much as anticipated. But come on, there's plenty of stocks selling at 20-25 times earnings that are not growing at all. I don't understand why NVO and MCK are down like that. 

If someone is looking for a momentum investment, healthcare is surely not the best sector. But, in the long run, I still believe in this sector. I may be wrong because I'm often wrong. But come on, if healthcare stocks don't recover, my knowledges about investment are fucking worthless. Which means you're reading worthless shit instead of playing an amazing game of Candy Crush.

Check all these stocks. They almost all trade at historic lows and they all have a ROE higher than 20.  That's crazy. A price war may explode in this sector but I simply can't believe that things won't get better... 

Average ROE last 5 years: 21
Actual ROE: 22
PE high last 5 years: 30
PE low last 5 years: 16
Forward PE: 9

Novo Nordisk
Average ROE last 5 years: 62
Actual ROE: 89
PE high last 5 years: 30
PE low last 5 years: 21
Forward PE : 15

Average ROE last 5 years: 70
Actual ROE: 103
PE high last 5 years: 41
PE low last 5 years: 9
Forward PE: 6

Average ROE last 5 years: 27
Actual ROE: 39
PE high last 5 years: 62
PE low last 5 years: 24
Forward PE: 15

Jazz Pharma
Average ROE last 5 years: 21
Actual ROE: 23
PE high last 5 years: 176
PE low last 5 years: 12
Forward PE: 10

United Therapeutics
Average ROE last 5 years: 29
Actual ROE: 43
PE high last 5 years: 34
PE low last 5 years: 9
Forward PE: 9

13 commentaires:

  1. It's the uncertainty in the sector. Drug price increases are slowing and all it takes is a populist move by Hilary to rollback prices and those forward P/Es go up. Analysts had it wrong on McKesson and I'm sure their models aren't going to get more accurate with a new US government. Why not sit on the sidelines and wait until healthcare stocks have a sustainable upside again or when there is more clarity in the sector? You don't seem like a buy and hold guy. I sold all my healthcare stocks except Savaria and UnitedHealthcare and bought Google, Priceline and Transdigm about 3-4 months back. Figure drug price cuts will help UNH and I don't think assisted living devices have entered the conversation so Savaria should be OK.

    Does anyone follow Investors Business Daily? Good clues as to what stocks are in favor and have positive momentum. 5i is great for Canadian Stocks and well worth the money. I have a 5i membership and am debating on getting the IBD subscription (I somehow currently get week old editions through their app)

    1. For what it's worth, I use IBD for my US stock analysis. Their process is similar to my manual work on Canadian stocks. I will note they recently went from a daily to weekly publication... but their stock ratings and IBD Large 20 and IBD 50 rankings are very good and worth the subscription.

  2. You seem to like expensive stocks.

    I've owned Savaria for a couple of weeks before selling everything because it was way too expensive for me.

    Now, it's even more expensive.

  3. I think this is a great article.These stocks are an incredible bargin.We know why they are cheap so there are no unknown,unknowns.I owned some and today bought McKesson at 125.40.
    Keep up the great work,please.

  4. In the interests of FULL disclosure. McKesson is facing tailwinds like LOWER drug prices during a presidential election (political pressure for the drug companies to keep prices down).The drug wholesaler will make less ALSO if the drug companies lower prices (or fail to raise them as much). But McKesson has a bigger problem. They are in an oligopoly with Cardinal Health and ABC. these three own 97% of the market...and the idiots running ABC decide they want to compete for marketshare BASED ON PRICE. This in an industry with razor thin margins. MCK has revenues of about $200 Billion. Their profit is a tiny fraction of that. If you start competing on profit, there may be no profit left. LOL
    Sooner or later, ABC will come to its senses (or they'd go bankrupt continuing a price war with two bigger companies with better balance sheets).
    In any event, MCK is going to protect the share price with their commitment to buy back $4 Billion in shares. that's more than 10% of the outstanding shares.

    I bought MCK at ~ $165. I think shares a real bargain here

  5. I came here looking for Jason Donville. Maybe, I'll have better luck chasing around the lacrosse fields around Ontario?

    1. Maybe. He's been silent for many months.

    2. If you haven't seen The Dark Knight Rises, you'll have no idea what I'm talking about but in the movie Batman is imprisoned in a deep, well-like prison that is virtually impossible to escape. I envision Donville as Batman and Concordia/Valeant have imprisoned him deep in the prison so he's spending months doing push ups and sit ups and once in a while he gets high enough in the well to shout out advice like, "CRH Medical! (up 49%) or "MTY Food Groups" (up 43%) in his appendices of his newsletters. Soon he'll be jacked and will soar out of the well in time to come back to us and give us more CRH Medicals, Badger Daylightings, Constellation Softwares, CGI Groups, MTY Food Groups, Paladin Labs, and other names that have made lots of people boat loads of money.

    3. Consider changing name from: Dont fuck with Donville to:

      Dont fuck with DONKEYville

      just add three letters to the name of the blog. the "KEY" is key.

    4. I think when it comes to investing, Donville's playing chess while the other folks are playing checkers. It wouldn't surprise me if angelo dallas was actually a pen name for Donville and he just comes on here as an act of self-deprecation and calls himself names for the mistake he made with Valeant and Concordia. If that's the case, stop beating yourself up man, it's a marathon not a sprint, and thanks again for highlighting Spin Master.

  6. Seeking Alpha has a solid article on McKesson just released an hour ago (nov. 2 at 7:30 am):


  7. Do you have to be a Pro member to get It?

    1. I can read the article WITHOUT a pro membership as I type this.